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Trade talk is not cheap (for the US)

06 Jul 2018, 08:00 | Posted by: Paul Donovan | Tags: Paul Donovan

The US raised consumer taxes again overnight. USD 34bn of goods partially made in China now face a 25% tariff. The consumer tax was designed to minimize the impact on the US consumer, which makes it something of an economic practical joke. This is not a trade war - it may redistribute patterns of trade.

US President Trump was sounding agitated, threatening to tax US consumers on up to USD 500bn of US sales (that would be a trade war). This creates uncertainty, which the Federal Reserve warns may damage investment in the US. Even if just "art of the deal" bluster, such talk has a cost that may not easily be reversed.

The Fed's minutes signalled a-quarter-point-a-quarter rate increases. The Fed was dismissive of the idea an inverted yield curve predicts recessions. Back in the 1970s when inflation was the biggest part of a bond yield and inflation was tied to the economic cycle, yield curve inversions (sort of) predicted recessions. Neither condition holds today.

The UK's interminably tedious attempt to escape the EU continues. The cabinet is locked away in a remote rural location and physically prevented from tweeting while they talk in a tedious and interminable fashion.